ACA research: Opt-outs minimal following contribution hikes

Almost nine in 10 employers say the April 2018 increase in minimum auto-enrolment contributions has not had an adverse impact on scheme participation, research from the Association of Consulting Actuaries has found.

The research found 88 per cent of employers had seen no decrease, with 75 per cent forecasting no further decreases following this April’s increase to 8 per cent of band earnings. However, the picture is more challenging for small firms, with 65 per cent of employers with fewer than 10 staff expecting modest or substantial decreases in participation from April 2019.

The survey, conducted over the summer amongst 349 employers of varying sizes, also found that cessation rates from AE schemes – the number of employees leaving AE schemes during and after the initial four week opt-out period – total typically 11 to 15 per cent of employees. ACXA says that most of those leaving after the initial month opt-out period are job movers.

The research also found between 26 and 30 per cent of employees covered by the survey presently are not eligible to be automatically enrolled into schemes, with this rising to 36 to 40 per cent amongst the small employers surveyed.

ACA’s research also found that 81 per cent of employers support the Government’s proposal to extend automatic enrolment to those aged 18 or over, with a small majority also agreeing contributions should be from the first £ of earnings and that minimum statutory contributions should be increased post-April 2019.

ACA chair Jenny Condron says:“Our annual survey points to the need – part of which we see as an essential addition to the Government’s ‘next steps’ pensions strategy – for a gradual, but essential increase in the default level of savings into DC schemes. This is needed to ensure that many more people save sufficient amounts for both an adequate retirement income and one where they have real choices to spend some of their accumulated savings as they approach or reach retirement.

“In our recommendations within the report we favour earnings from the first £ being eligible for AE by 2021 as proposed by the 2017 AE Review. At the same time, actions are needed to draw more of those on lower incomes and the self-employed into AE levels of contributions, beginning with the gig economy’s quasi-employers. Then, from 2025, with due notice having been given, there is the need to gradually phase in rises in total contributions until they reach 12-14% of earnings. An 8% or 10% total contribution on all earnings, deemed acceptable by employers responding to the survey, is unlikely to generate the adequate levels of retirement income most people would want. We believe the phasing should alert workers so they too can plan ahead, whilst also recognising that there might be strained economic conditions over the period.

“It would be good if the forthcoming 2019 Pensions Bill mapped out a programme to build AE participation and pension contributions for years ahead, alongside the greater defined benefit flexibility we have called for rather than it be a Bill that is largely dealing with the protection of members in legacy DB schemes. We believe in many areas there is cross-party support for broader and swifter action than presently seems to be envisaged.”